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Listing Inventory In The Shadows Of Marketing

A long standing marketing technique for the seller of any product is to create a sense of urgency so the buyer will make a decision, hopefully a purchase. This applies to all goods and services and real estate is no exception.

One of the more daunting tasks in the New York housing market is to be able to track inventory levels of residential housing units, specifically co-ops and condos. This post was inspired by comments made by The Boston Real Estate Blog’s John Keith [1] on one of my earlier posts [2].

Re-sale listings are not too big of a challenge to keep track of…simply count them. However, new development listings are more difficult, if not impractical to keep a running total without significant manual labor. Why?

Whether the project is a newly constructed building or conversion of an older building, developers don’t make all the units available at the same time. In other words, a 150 unit building entering the market might only allow 25-50 units at any one time to be available for sale. Buyers are limited to the units made available. These units get picked up in the inventory count each month but the remainder do not, thereby undercounting total potential inventory.

This is kind of twisted in its logic since the goal is to sell out the building so why wouldn’t the developer make them all available for sale? …because consumers want to feel that they are getting something unique or special.

A project I was familiar with saved the penthouses for last because they were so special to the building. The logic was to market the building one way and then when the units were nearly gone, to shift the marketing effort specifically towards the penthouses. It worked.

In some developments, it might be a concern that the “hot” units, a particular line or style of unit, sell so quickly with little interest in other unit types, that the remainder of the units might be seen as duds.

_Slightly off track_
I find it humorous that big department stores have holiday sales, inventory overstocks, etc. all the time. Can they really be that bad at projecting how many products they are going to sell during the year? Do they really have to clear inventory to make way for new products so “we’re selling them at cost!”

No way. Its part of the marketing strategy. Some people will only buy something if its on sale and some people could care less whether it is on sale or they don’t plan their shopping around that fact – they go for the convenience. Its not all about saving money (well, that is a big factor) but its knowing that they got to buy something that someone else didn’t have access to or the “inside track.”

Some buyers want to buy something that not everyone can get…ie an “exclusive” offer. Powerful stuff that rational, sane, logical people understand but still buy the product anyway.

The same goes for real estate marketing. One segment wants to feel like they got something thats “exclusive or rare” and some could care less. Logic doesn’t always apply, its about the experience. Thats part of what is being purchased and thats ok.

_back on topic_
So what does this mean for housing inventory stats?

It means that the total count is lower than it should be. However, since this technique has been done for as long as I can remember, inventory numbers should still show reliable trends. In other words, the count would be considered a constant in the equation.

This “warehousing” technique is used by developers in tight housing markets although its probably more effective in weaker housing markets.

In a stronger housing market, developers emphasized urgency by creating regular price increases so theirs was an incentive for the purchasers to buy early. That won’t work today.